European shares lifted by US debt deal optimism, Swedish real estate stocks

European shares rose on Friday, with real estate and mining stocks in the lead as investors took comfort from the passing of the U.S. debt ceiling bill and hints that the Federal Reserve could pause its interest rate hiking cycle later this month.

The pan-European STOXX 600 index was up 0.7%, with economically sensitive sectors such as miners, retailers and oil & gas rising the most. The U.S. Senate on Thursday passed bipartisan legislation backed by President Joe Biden that lifts the government's $31.4 trillion debt ceiling, averting what would have been a first-ever default.

"With disaster averted for now, attention will turn to other matters which have been overshadowed by the drama in Washington," said AJ Bell Investment Director Russ Mould. "U.S. jobs numbers this afternoon may provide some pointers to the next move by the Federal Reserve, whose decision-making no longer needs to consider the potential financial stability risks associated with default on U.S. debt."

U.S. payrolls data, due at 1230 GMT, is expected to show job growth slowed in May, with wages coming off the boil, potentially allowing the central bank to skip an interest rate hike this month. Europe's real estate index rallied 3.7% as government bond yields hovered near recent lows on signs that price pressures are easing faster than expected in the euro zone.

European Central Bank (ECB) board member Fabio Panetta is expecting further hikes in interest rates but says the end of the cycle is in sight, according to an interview with French newspaper Le Monde, published on the ECB's website. Meanwhile, shares of Swedish real estate firm SBB rallied 21.8%, on track for its best day in over six years, after Bloomberg News reported it has attracted interest from investors including Brookfield Asset Management.

Other Swedish property firms such as Fabege AB , Castellum AB and Balder gained in the range of 5.7% to 8.2%. The highly leveraged sector has come under pressure in the recent months as soaring rates and falling property values squeeze real estate firms in Europe.

Shares of German sportswear makers Puma SE and Adidas AG rose 3.8% and 3.5%, respectively, after U.S. retailer Lululemon Athletica Inc raised its annual sales and profit forecasts. ProSiebenSat.1 rose 2.2% after Czech investment group PPF raised its stake in the German media group to 15.04% in stock and instruments.